Implementation of the Anti-Tax Avoidance Directive Into Maltese Tax Law

  • By:Melissa Speigner
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On 11 December 2018, L.N. 411 of 2018 – European Union Anti-Tax Avoidance Directives Implementation Regulations 2018, was enacted transposing the provisions of the EU Anti-Tax Avoidance Directive – Directive (EU) 2016/1164 of 12 July 2016 (the ATAD) with effect from 1 January 2019.

 

The main thrust of the regulations is to implement the anti-tax avoidance measures contained in the ATAD. The ATAD was originally proposed by the European Commission on 28 January 2016 as part of the Anti-Tax Avoidance package. The aim of the ATAD is to have a uniform implementation (and in some cases exceeding) of the Base Erosion and Profit shifting recommendations by the Organisation for Economic Co-operation and Development (OECD).

 

To this effect the Regulations introduce three novel anti-avoidance concepts into Maltese income tax law namely, an Interest Limitation Rule, Controlled Foreign Company (CFC) Legislation, Exit Taxation.

 

  1. The Interest Limitation Rule essentially limits exceeding borrowing costs up to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA) in excess of three million Euro.
  2. The Exit Taxation provision essentially seeks to tax latent capital gains on assets at the time of exit of such assets or the taxpayer holding such asset move out of the Maltese tax net.
  3. Controlled Foreign Company (CFC) Legislation may for the first time include in the tax base of a Maltese taxpayer, certain “controlled foreign company income” of a foreign entity controlled by such Maltese taxpayer.

 

They also expand on the Genaral Anti-Abuse (GAAR) rule to include arrangements or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law or are not genuine.

 

The aforementioned provisions apply to all companies as well as other entities, trusts and similar arrangements that are subject to tax in Malta in the same manner as companies, including entities that are not resident in Malta but that have a permanent establishment in Malta provided that they are subject to tax in Malta as companies.

 

These developments are quite significant in Maltese income tax history, especially given the island’s positioning as a tax-efficient jurisdiction and will present some challenges for traditional tax-structuring for international investors. Accordingly, taxpayers already involved or contemplating any investment structure using Malta should seek specialist assistance on the matter.

Corrieri Cilia is a qualified law firm specialising mainly in international taxation and international business, and providing corporate, management and tax compliance services. If you need advice in any of these areas, please contact us on [email protected] to find out how we can help you.

Posted in: Maltese Tax Law

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